Goldman Sachs has set a new path – but will others now follow?

As we dive into 2020, watching Australia’s wildfires spread at alarming
rates, it’s key to reflect on some of the climate moments of 2019, and how
we can build on them with new energy this year.

It’s with that spirit that we’re reflecting on the unexpected – and
widely welcomed – move by one of the world’s biggest investment banks in
December. Goldman Sachs has started to distance itself from fossil fuels, rejecting
any future financing of oil drilling or exploration in the Arctic.

Not only is this good news for the Arctic – a regular media menagerie of
melting ice, stranded polar bears and alarming warmth – but it’s also good news
for business. Industry experts and environmentalists alike are pointing to the increasing
benefits of investing in a truly sustainable way, and this move by a major
financial player will only strengthen that argument.

While credit is due for Goldman
Sachs’ policy-change – and the organisations that pushed them toward it must equally
be applauded – it’s important to note that this is one ripple in a churning
ocean of environmental worry.

Though the global climate
undeniably benefits from a move away from investments in coal, there is a risk
that these funds will now divert to other industries that could also have a bad
impact on the planet. Our own analysis
published in September on the financing of companies linked to deforestation
shows that many are not exercising caution when it comes to these risks in
their investments.

Forests critical for curbing climate breakdown are still destroyed at
rapidly escalating rates. Agribusiness – particularly cattle – forcing
communities and forests alike off land they’ve both occupied for generations. And
while banks and investors continue to rely on voluntary measures to curb
climate change, the problem will only continue to grow.

The chair of the World Economic Forum’s Tropical Forest Alliance last year concluded “that, on their own, voluntary commitments by
companies don’t work.” In short – the evidence is clear. Labels, voluntary
agreements and opt-in standards aren’t doing enough to protect the planet. We
need regulation on our financial sector to stop it pumping money into destructive
company practices, and that must be led by government.

More specifically, we need regulations making it mandatory for investors
to undertake due diligence on the deforestation risk, environmental and human
rights impacts of companies they invest in. Such regulation strips them of the
opportunity to feign ignorance over their investee’s activities, and introduces
an element of responsibility for those activities that we just aren’t seeing
yet.

Nowhere is the importance of this kind of regulation clearer than with
the Amazon rainforest, where the Brazilian government are still failing to curb,
and even encouraging, rampant deforestation. An astonishing 80%
of deforestation there is attributable to the beef sector alone, with
rainforest torn down to try to profit from rearing cattle in its place.

In an open
letter released towards the end of 2019, Global Witness, alongside nearly 47
other organisations, highlighted the known risks for beef traders choosing to
source from the Amazon.

It warned investors of the ongoing deforestation risks of beef traders
JBS and Marfrig, following reports that the Brazilian Development Bank (BNDES)
may sell shares it holds in both companies in December or early 2020. As two of
the world’s largest beef traders operating in Brazil, they’ve been accused multiple
times of links to deforestation. They have denied deforestation in their supply
chain and point to controls and systems they have implemented. But risks are
high in the climate-critical Amazon forest which continues to be destroyed at
an alarming rate.

The world now faces a real risk that accelerating destruction of the
Amazon will reach a tipping point of no return – where the forest is unable to
sustain itself and the massive carbon sink so critically needed to cool the
planet disappears. This crisis takes place against a backdrop of escalating
human rights abuses in the country, particularly targeting those communities
defending the forest.

Amongst the banks with shares in Amazon beef traders – including both JBS
and Marfrig – is none other than Goldman Sachs, alongside many other investors
and banks claiming green credentials. Banks and investors don’t have to look
far to find reports about the risks of deforestation associated with this
sector.

The question is – when will they start to care? And how long will governments
wait before they step up to the plate and remove the ambiguity of what we
expect investors to do? By introducing new regulation, our governments can pull
investors and banks into line – ensuring that investment into companies razing
our precious rainforests is a definite no-go.